Insured people go to doctors more often and request more diagnostic tests and more complex treatments than they would if they were uninsured because, with health insurance, the price or opportunity cost of consuming health care is minimal.
For example, many individuals with private insurance pay a fixed premiumfor coverage, and beyond that, aside from a modest deductible, their health care is free.
This situation differs from most markets, in which the price to the consumer reflects the full opportunity cost of each unit of the good or service.
In all markets, price provides a direct economic incentive to restrict use of the product.
The minimal direct price to the insured consumer of health care, in contrast, creates an incentive to overuse the health care system.
Of course, the penalty for overuse will ultimately show up in higher insurance premiums, but all policyholders will share those premiums.
The cost increase for the individual health consumer will be relatively small.
Also, the availability of insurance removes the consumer’s budget constraint (spending limitation) when he or she decides to consume health care.
But insured patients face minimal or no out-of-pocket expenditures at the time they purchase health care.
Becauseaffordability is not the issue, health care may be overconsumed.
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